Pontiac council votes against Schimmel's plan to eliminate health care for retirees

The Pontiac City Council has voted against Emergency Manager Lou Schimmel's plan to set aside retiree health care, with the intention of submitting an alternate plan to the state.

Health care for nearly 1,000 of the city's retirees costs the city about $6 million per year -- roughly equal to its remaining structural deficit, the last $6 million difference between how much the city spends and how much it takes in each year.

The council intends to propose that funds from the Pontiac General Employees Retirement System, which is approximately 150 percent funded and has about $450 million in assets, be used to pay for retiree health care.

The emergency manager said Friday that the method of funding that the council is proposing can't be pulled together by the time the city's new fiscal year starts July 1, and would depend on the performance of the stock market.

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Schimmel's plan would eliminate retiree health care for two years or when the city exits receivership, whichever comes first, and would provide a $400 pension benefit increase for one year.

The council voted Schimmel's plan down 5-1, with Councilman Randy Carter voting no and President Lee Jones absent.

The council's counterproposal -- known as a "420 transfer," named for a section of the Internal Revenue Service Code -- allows the use of 50 percent of the pension fund's earnings each year over and above projected returns to pay for retiree health care, per state law.

Schimmel said a plan that would have guaranteed retirees' health care is not being presented because the pension board refused to consider it.

Earlier this year, he proposed that the pension fund join the state Municipal Employees' Retirement System, with the pension fund buying in at 120 percent, leaving a funding cushion, and directing the remainder of its assets toward retiree health care.

"However, this means that Charlie Harrison and his board would lose their right to go to Hawaii and travel around the country, and the pension board attorney would lose a client," Schimmel said, referring to Pontiac General Employees Retirement System Chairman Charlie Harrison III.

"Also, it would eliminate our Charlie Harrison's ability to do investments with people like Roy Dixon (Jr.)," he said.

Harrison didn't return a call for comment on Friday.

The Pontiac General Employees Retirement System lost a $3.8 million investment in Dixon's private equity fund, Onyx Capital Advisers, and the private equity fund is the subject of two civil suits and a criminal indictment in U.S. District Court. Before that, the pension fund lost $1.7 million on a real estate investment.

Under the state's emergency manager law, the council had 10 days to vote against Schimmel's plan after he notified them of it on May 10.

They now have a week to prepare an alternate plan that provides equal savings and submit it to the state for consideration.

Once council submits its plan, the local emergency financial assistance loan board has 30 days to review both proposals and select "the proposal that best serves the interest of the public in that local government," per Public Act 436.

"The emergency manager has chosen to sell assets and prepay the debts of the city, (including) some debts that aren't even due until 2027, while he's leaving the retirees high and dry," Claudia Filler said at Thursday's well-attended special council meeting. Filler is president of the City of Pontiac Retired Employees Association.

Schimmel contends that the pension board voted against a 420 transfer two years ago, and didn't consider it when he asked the board to study alternative means of paying for health care.

He said Friday that the complex transfer can't be completed in time to fund retiree health care.

"Now they've shown up at the eleventh hour with a plan that they rejected two years ago and rejected considering when (Finance Director) John Naglick brought it up," he said. "We'd lose a whole year, and the city can't lose a whole year."

After more than four years of state control of the city's finances, Schimmel, the city's third emergency manager, plans to leave City Hall by June 30. The city would then follow a two-year budget with supervision by a state Transition Advisory Board.

"I don't think it works because it's subject to the whims of the stock market, and if the stock market has a bad year, the pension board won't be able to make the $6 million payment, the city's general fund will be short $6 million, and there's no place else to cut.

Therefore, it will send the city into bankruptcy," Schimmel said of a 420 transfer.

Last November, a 6.5-mill ballot proposal to fund retiree health care was rejected by Pontiac voters.

"I'm certainly not going to make a decision that could ultimately lead into the city going into bankruptcy," Schimmel said.